Gone are the days when the assumption was that only those individuals who were classified as super-rich had the potential to become an angel investor in a start-up.
By Apoorv Ranjan Sharma
The start-up ecosystem is one of the fastest-growing in the world. India has become a start-up hub and is the third-largest start-up ecosystem in the world, having added over 1300 start-ups in 2019. India’s start-up ecosystem has a major impact on the country’s economy and start-ups being successful would be a boost for the overall economy. However, one of the major challenges most start-ups face is that of raising funds. It is not uncommon to see a start-up fail to sustain due to the lack of sufficient funding. Although the government has allocated a large number of funds to the start-u community and there has been a significant rise in the number of start-up incubators, there is scope for improvement.
This is where angel investors come into the scene. Angel investors are those individuals who provide capital for a start-up, usually in exchange for ownership equity or convertible debt. The process of becoming an angel investor has become simpler over the years. Here is why you should consider becoming an angel investor if you are looking to make an investment that would be worth every penny.
The start-up funding scene in India has continued to flourish over recent years. During the third quarter of 2019, start-ups are estimated to have raised a total of USD 2.55 billion, which was almost 25% more than the USD 2 Bn and the USD 2.13 Bn raised in the previous two quarters. With this consistently maturing ecosystem, being an angel investor would surely ensure you reap the benefits while exiting the company.
No longer only for ultra-rich
Gone are the days when the assumption was that only those individuals who were classified as super-rich had the potential to become an angel investor in a start-up. It is now relatively easier for a working professional of a private organization to evaluate their needs and benefits and invest in a start-up. Today, the costs involved in investing in a start-up have lowered drastically and the process has been simplified with the entire legal documentation process being taken care of by the angel investment group.
If you were to wait for a company to be a publicly listed one before investing in it, you might be missing out on about 95% of the gain. Most new-age tech companies are yet to enter the public markets in India. For a country like ours, which has a growing start-up community, it is not too late to become an angel investor, considering that the best years are still ahead.
Return on Investment
One of the first and most important things an investor would consider is the returns that they would get from making the particular investment. Traditional investments like real estate generally show a steady return. These investments, however, are subject to market risks including inflation and are known to be slow in wealth generation. Compared to these, being an angel investor in a start-up allows you to be more in control of your investment and have potentially higher gains.
Keeping yourself updated
Since start-ups are constantly evolving, they would always have some change that you can look forward to. The monotony is broken in a start-up, allowing you to regularly learn and stay updated with the current happenings in the industry as well as the start-up ecosystem as a whole. Especially with technology evolving at an unbelievable pace, the start-up community would keep you updated, and allow you to learn in the process.
Economic contribution, job creation
By the end of 2020, there will be more than 11,000 start-ups in India. However, the unemployment rates that the country has seen in recent times have been one of the worst. Investing in start-ups as an angel investor not only allows you to be a contributor to the economy of India but also indirectly allows you to create more jobs since the companies would scale up, creating more job opportunities.
Strong network base
Networking is important in any professional environment. As an angel investor in a start-up, you would be a part of a strong network of investors which would inevitably prove to be beneficial in the long run, by helping you connect with like-minded people. This could also help you lay a strong foundation for your professional as well as personal growth.
Considering the above-mentioned points, there are multiple benefits to becoming an angel investor in a start-up. However, the decision ultimately lies in your hands as each individual would have a different set of requirements and benefits that they are looking for. So prior to investing, do some research, analyse and choose what suits you best!
Apoorv Ranjan Sharma is the Co-Founder & President at Venture Catalysts and Co-Founder and MD at 9Unicorn. Views expressed are the author’s own.